Seminar THURSday 24 October, 2013
Personality, IQ, and Lifetime Earnings
Abstract
Talented individuals are seen as drivers of long-term growth, but how do they realize their full potential? In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their personality traits and education. Personality traits directly affect men's earnings, with effects only developing fully after age 30. Furthermore, these effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through education, which has sizeable positive rates of return for men in this sample. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.
Keywords: lifetime earnings, returns to education, cognitive skills, social skills, personality traits, Big Five, factor analysis, human capital.
JEL codes: J24, I24, J16